US legal move to find 'tax-dodge' clients at UBS

The secretive world of Swiss private banking was shaken to its core today as US federal investigators launched a legal action to force UBS to turn over the names of rich Americans allegedly using it to avoid taxes.

It is the first time such an action has been taken against a foreign bank and, if successful, could erode the much-vaunted privacy on which the Swiss banks pride themselves.

It comes as a host of countries including the UK are ratcheting up their international pursuit of tax cheats in secretive havens like Switzerland and Liechtenstein.

Swiss law makes it illegal for the country's banks to disclose confidential information without client approval. Initially, it looked as though the Swiss and US authorities were working together on a compromise whereby the US would obtain the names of alleged tax dodgers from Swiss regulators.

However, legal experts said last night's action by the Justice Department to seek a federal court order on UBS in a Miami court, showed the US was taking a more aggressive tack.

The challenge marks the latest chapter in the American taxman's high-profile pursuit of tax offenders stemming from the evidence of former UBS private banker Bradley Birkenfeld. He pleaded guilty to conspiracy and said UBS had helped rich American citizens hide $20 billion (£10 billon) in assets to evade income tax.

Birkenfeld outlined a host of tricks he claimed were used by himself and other UBS bankers, whom he says were trained by the bank in tax evasion techniques. These included buying art and jewellery with funds from Swiss bank accounts.

UBS, which said it was co-operating with the US and Swiss authorities, is in the middle of its biggest ever crisis, having lost billions of dollars in the subprime mortgage fiasco.

Shareholder activist and former chief executive Luqman Arnold has demanded radical change at the top.

Today, it shook up its corporate governance rules to strengthen the powers of its non-executive directors. Meanwhile, four directors resigned.